Hasbro negotiating to buy DreamWorks Animation

Updated 5:49 pm, Thursday, November 13, 2014

The PDI/DreamWorks facility in Redwood City reportedly is closing as part of the shakeup.

The PDI/DreamWorks facility in Redwood City reportedly is closing as part of the shakeup.

Photo: Paul Sakuma / Associated Press

Hasbro negotiating to buy DreamWorks Animation

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Shrek could soon share a home with the Transformers and My Little Pony, if their corporate parents are able to seal a deal.

Toymaker Hasbro is in advanced talks to buy DreamWorks Animation, potentially gaining a new big-screen outlet for its wares, people briefed on the matter said this week.

Shares in DreamWorks, with headquarters in Glendale and a studio in Redwood City, rose on the report.

Should a deal be reached — and sources cautioned that talks might still fall apart — it would mark a new chapter for DreamWorks Animation. It would also come more than a month after the studio held talks with another prospective buyer, the Japanese telecommunications company SoftBank.

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Under the current terms of the proposed deal, Hasbro would pay a mix of cash and stock, though an exact price has not yet been determined, one of the people said. Jeffrey Katzenberg, the CEO of DreamWorks Animation, is seeking more than $30 per share, a significant premium over his company’s current stock price.

Shares in DreamWorks Animation closed Thursday at $25.52, up $3.15, giving the studio a market value of more than $1.9 billion. Hasbro closed at $54.98, down $2.49, giving it a market value of about $7.2 billion.

Katzenberg, the Hollywood mogul who runs DreamWorks Animation, is expected to stay with the company, the person added.

In courting the Hollywood studio, Hasbro believes that it can find a new market for its stable of toys, which includes Transformers, G.I. Joe and My Little Pony. The company, the second-biggest toymaker in the United States behind its Mattel, has reported robust sales in recent years. Last month, it reported sales of $1.47 billion in its third quarter, up 7 percent from the same period of a year earlier.

Hasbro’s CEO, Brian Goldner, has long sought to take advantage of the company’s properties to transform it into a global entertainment titan, notably by forming its own studio in 2009 to develop and produce television shows and movies.

One model might be the Lego Group, a privately held Danish company. Lego started with its trademark plastic toy bricks and became a broader entertainment company by creating Lego video games and building seven Legoland theme parks. Its most recent effort was a collaboration with Warner Bros., “The Lego Movie,” which took in $468.1 million worldwide. Three sequels are on the way.

Some of Hasbro’s own efforts have met with success. The four live-action “Transformers” movies, made together with Paramount Pictures, have produced nearly $3.8 billion in ticket sales. And Universal recently hit paydirt with “Ouija,” a horror film based on the classic Hasbro board game. The film cost $5 million to make and has so far taken in $57.9 million.

But Hasbro’s four-year joint venture with Discovery Communications to establish a children’s cable channel, the Hub Network, ended in October when Discovery bought a controlling interest and rebranded the channel Discovery Family.

Hasbro has also suffered a few movie flops, notably “Battleship” in 2012.

In buying DreamWorks Animation, Hasbro, which is based in Rhode Island, would be teaming up with Hollywood’s smallest film studio. DreamWorks Animation produces only a handful of movies a year but has been responsible for blockbusters like the “Shrek” and “Kung Fu Panda” franchises. The company was spun off in 2004 from DreamWorks Studios, which is privately owned.

The studio has fallen on harder times in the past couple of years, with films like “Turbo” and “Rise of the Guardians” falling well short of expectations. Even its most recent hit, “How to Train Your Dragon 2,” suffered from lower domestic ticket sales than its predecessor. Source material that is already familiar to children — like Hasbro toys — would give the studio a leg up when it comes to generating interest in a related movie.

DreamWorks Animation has seen two consecutive quarterly losses, including a $15.4 million in the quarter that ended June 30. But in the most recent quarter, the company reported net income of $11.9 million, a 17 percent increase compared with results in the same period of a year earlier. From its high in early 2010, the studio’s stock price has fallen 49 percent.

Yet analysts have said that DreamWorks Animation still has a trove of lucrative content in its library. And the company has been making forays into television production and an array of other business initiatives, from an entertainment center in Shanghai to indoor mini theme parks in Russia.

The studio also owns AwesomenessTV, a YouTube channel for teenage girls.

News of the talks between Hasbro and DreamWorks Animation was initially reported by Deadline.com, a trade publication.

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